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Unit 21: Capital Market in India and Working of SEBI

result of this diversification of activities, SCICI Ltd. lent to a variety of industries, besides shipping Notes
and fishing industries such as automobiles and its ancillaries, chemicals and petrochemicals,
electronics, information technology, power generation, and distribution, steel and steel products,
other metals, textiles and food processing. However, shipping and fishery industries continued
to be the priority for the SCICI Ltd. Till the end of March 1996, SCICI had sanctioned a total
assistance of ` 12,750 crores. SCICI was, however, merged with ICICI in April 1996.
Of all the development financial institutions set up by the Indian Government after Independence,
ICICI registered the most spectacular success. In fact, the financial assistance sanctioned and
disbursed by ICICI rose tremendously during the 1990’s and had exceeded the assistance
extended by IDBI which was the apex institution in the field of development finance.
Another pioneering event was the reverse merger of ICICI with its subsidiary the ICICI Bank in
March 2002 and the creation of the first universal bank in India. With this merger, ICICI was no
more a development financial institution.
The Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India was set up since 1947 to provide long-term finance to
industry. IFCI, the SFCs, ICICI, and the Refinance Corporation of India were functioning for several
years provided direct plans, subscribed to shares and bonds and to guarantee loans and deferred
payments. The volume of long-term finance provided by these institutions were substantial and
were steadily increasing too, but it was found inadequate to meet the requirements of new and growing
industrial enterprises. On the one side, the needs of rapid industrialisation necessitated the
establishment of a new institution with large financial resources. On the other side, there was the
need to co-ordinate the activities of all agencies which are concerned with the provision of finance for
industrial development. It was to fulfil this two-fold objective that the Government establish the
Industrial Development Bank of India (IDBI) which formally came into existence in July 1964.
IDBI was a wholly-owned subsidiary of the Reserve Bank of India till 1976. The general direction,
management and superintendence of IDBI was vested in a Board of Directors, which was the same as
the Central Board of Directors of the Reserve Bank of India. The Governor and Deputy Governor of
the Reserve Bank were the Chairman and Vice-Chairman of IDBI. The Finance Ministry of the
Government of India, however, wanted direct control and direction of IDBI. Accordingly, IDBI was
delinked from the Reserve Bank of India and was taken over by the Finance Ministry in 1976.
Functions of IDBI

The main function of IDBI, as its name suggests was to finance industrial enterprises such as
manufacturing, mining, processing, shipping, and other transport industries and hotel industry. IDBI
granted direct assistance by way of project loans, underwriting of and direct subscription to industrial
securities, soft loans, technical refund loans and equipment finance loans. The Bank guaranted loans
raised by industrial concerns in the open market from scheduled banks, the State cooperative banks,
I.F.C.I. and other “notified” financial institutions. It could assist industrial concerns in an indirect
manner also, that is, through other institutions. It could refinance term loans to industrial concerns
given by the IFCI, the State Financial Corporations, scheduled banks or State co-operative banks.
The Industrial Development Bank of India Act, 1964, had provided for the creation of a special fund
known as the Development Assistance Fund. This Fund was used to assist those industrial concerns
which were not able to secure finances in the normal course because of low rate of return.
IDBI became the most important institution assisting industrial units till 2000-01.
IDBFs loan sanctions had increased from ` 1,280 crores in 1980-81 to ` 26,830 crores in 2000-01; and
during the same period disbursements had increased from ` 1,010 crores to ` 17,480 crores —also
reflecting the rapid industrial and business growth of the country on the one side and the
corresponding increase in the mobilisation of resources by the development financial institutions on
the other. In this, IDBI had a leading role as it was the apex financial institution of the country.

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